PETALING JAYA: Corporate Malaysia is on the right track toward transitioning to a low-carbon economy as environmental and sustainability initiatives gain momentum in global markets.
With the carbon credit market moving into high gear and global technology companies increasingly investing in Malaysia with a strong focus on clean emissions, experts believe the country’s shift towards a low-carbon economy is poised for further growth.
A low-carbon economy refers to one that absorbs as much greenhouse gas as it emits.
Achieving this goal requires reducing emissions in all sectors that produce greenhouse gases such as energy, transportation and agriculture.
Delving into the carbon credit market, EY Asia-Pacific climate change advisory leader and Asean climate change and sustainability services co-leader Arina Kok told StarBiz that this market is fast evolving, spearheaded by innovative platforms like the Bursa Carbon Exchange (BCX).
“Recently, BCX introduced continuous trading for Renewable Energy Certificates (RECs), which simplifies the process for Malaysian companies to engage in offsetting emissions through direct purchases of renewable energy.
“This REC trading option enables businesses to support renewable energy initiatives, while contributing to Malaysia’s sustainability targets,” she said.
Basically, carbon credits provide companies with a trading mechanism to offset their emissions by funding projects that prevent or remove carbon dioxide (CO2) from the atmosphere.
Each credit typically represents one tonne of CO2 avoided, allowing organisations to compensate for emissions that are difficult to eliminate through operational changes.
In addition to RECs, BCX is set to begin offering Malaysian carbon credits via an auction system.
This new approach will enable Malaysian companies to trade carbon credits more efficiently and transparently, thereby fostering a robust carbon market.
Kok said the auction would facilitate price discovery and ensure a fair market value, promoting a more competitive environment for carbon trading.
She added that BCX also enhances flexibility by adhering to international standards, such as the International REC Standard, allowing Malaysian businesses to acquire globally recognised credits.
As the world’s first syariah-compliant carbon exchange, Kok highlighted that BCX establishes a benchmark for ethical and sustainable trading practices.
“This unique positioning supports Malaysia’s environmental and socio-economic goals, enabling transparent and responsible carbon offsetting that aligns with local and international standards.
“Overall, BCX plays a crucial role in advancing Malaysia’s transition to a low-carbon economy by providing the tools and frameworks necessary for companies to meet their emissions commitments responsibly,” she said.
On carbon tax, Kok noted that while details about Malaysia’s upcoming carbon tax are still unclear, it is likely to have a similar cap to that of Singapore’s.
Therefore, she advised companies to focus on improving their operational efficiency and finding innovative ways to lower emissions.
This may include electrification, sourcing RE, purchasing RECs, and exploring cleaner fuels like biodiesel and hydrogen.
This shift would drive demand and resources towards the necessary infrastructure, she said.
Kok highlighted that the big tech companies operating in Malaysia, such as Microsoft Corp, Google LLC and Amazon.com Inc, are investing in artificial intelligence and small modular reactors (nuclear) to generate clean electricity and reduce emissions.
Singapore’s recently introduced carbon tax has set a limit of offsetting a maximum of 5% of taxable emissions.
In contrast, the European Union’s Emissions Trading Scheme (ETS), which operates similarly to a carbon tax, has stopped allowing the purchase of offsets under Phase 4 of the Paris Agreement, which began in 2020.
The Paris Agreement is a legally binding international treaty on climate change.
An ETS works by setting a cap on emissions and requiring emitters to hold permits for each tonne of CO2 that they emit.
The cap determines the number of available permits.
If emitters don’t already hold a permit, they must either cut back on their emissions or buy a permit from another emitter, who has reduced theirs.
This means that a cost is imposed on emissions, equal to the price of buying or selling permits.
A carbon tax is sort of the opposite. A cost is imposed on all emissions, equal to the level of the tax, and this causes companies to reduce emissions to lower their tax burden.
Kok said establishing an internal carbon pricing (ICP) mechanism can be a crucial strategy in the decarbonisation journey.
ICP involves assigning an internal price to carbon emissions and using the funds collected to invest in emission reduction projects.
“This could involve internal exchanges between departments (insetting) or investing in emission reductions outside the company’s value chain (offsetting).
“By prioritising emissions reductions and investing in cleaner technologies, businesses can significantly contribute to the decarbonisation efforts needed to meet the Paris Agreement goals,” she said.
To ensure the integrity of carbon credits, Kok said Malaysian stakeholders should prioritise purchasing high-quality credits verified by reputable organisations.
Establishing a due diligence team to assess the credibility of these credits is also advisable, though this may incur additional costs.
Therefore, Kok said staying informed about industry standards and best practices will further support stakeholders in making sound decisions regarding carbon credits.
Source: The Star